Obviously, we all know that when times are rough, many people take on credit card debt to meet everyday expenses and pay bills. Then the credit card debt itself becomes a problem. In the last several year, however, banks have started offering programs called “balance liquidation plans,” to help debtors repay their credit card bills without filing bankruptcy. What are these plans, and are they legitimate?
- A balance liquidation plan (BLP) is a payment plan designed by a bank to allow debtors to pay down their balances when they are no longer able to do so in their regular monthly payments. The plans require debtors to surrender and void their credit card account. This prevents additional charges from accumulating on the balance.
- The BLP then caps the interest rate at a certain amount, and this can vary between 12 percent, five percent, and even 0 percent. The bank determines the interest rate based on its backroom mathematical models for what debtors can afford to pay without going defaulting.
- BLPs appear on debtors’ credit reports as a “closed account” and not as a delinquent one. This is good for debtors in the long run once they pay down the balance and rebuild their savings.
- The duration of a BLP is fixed. Often it can be as many as five years.
Essentially, a balance liquidation plan allows debtors to refinance their credit card payments. There are a few drawbacks:
- It may be better to consolidate your debt into one account and pay it down because banks’ practices differ regarding BLPs.
- The amount required and the duration of the plan is often not worth the effort. If you owe a huge amount of money on your credit card, the likelihood that you’ll lose your source of income might be pretty high. If that happens you’ll default on the loan and be worse off for it. The plan may also be too long to be worthwhile. Given that a Chapter 7 bankruptcy remains on one’s credit report for 10 years and people can refile once ever eight years, a five-year repayment plan probably isn’t much better than a discharge in the long run.
Balance liquidation plans might work for those with small amounts of credit card debt and who’ve recently lost an income source, but a Chapter 7 bankruptcy is probably a better long-term option.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling 702-880-5554.